I was the senior retail analyst at Morgan Stanley for 16 years, following a 20 year career at retailers including Macy’s, May Department Stores and Allied Stores. Currently I head Loeb Associates Inc. a management consulting and strategic advisory firm for leading domestic and international retail companies. I was a director of the National Retail Federation (NRF) as well as several leading retail companies including The Hudson Bay Co, Gymboree Corp. and Federal Realty Investment Trust. In addition to publishing the acclaimed Loeb Retail Letter, I have been, for several decades, quoted in the media on events and trends in the retail industry in top business and trade publications.

Expect More Retail Promotions In 2013, Thanks To The Internet

The December 2012 sales results have just been announced, and there was a substantial increase over the past year for some retailers. Nordstrom was impressive reporting an 8.6% increase in comparable store sales. Contributing to the increase was Internet sales (which I estimate to be more than 35% over the previous year). Macy’s 4.1% increase in comparable store sales was lifted by a 52% increase in Internet sales underscoring the strength of its omni-channel strategies as I have written about previously. Kohl’s reported a 3.4% increase in comparable store sales helped by 46% increase in Internet sales. Costco was a star performer with a 9% increase in comparable store sales. Target reported flat sales for the December period. The Gap reported a 5% increase boosted by 13% for Old Navy. These are pretty good results for these large retailers, and there is no doubt the Internet was a net plus to business. It is also a highly promotional retail channel just like the brick and mortar variety.

Long before Christmas the Internet sites of many stores had very persuasive offers – Macy’s advertised their Last Minute shopping event, Toys “R” US had lowest prices of the season and Kohl’s and JCPenney also continually advertised 40 to 60 percent off events. Lands’ End and L.L.Bean, both former catalog retailers, had almost daily offerings and events. The post Christmas advertisements targeting Internet shoppers are even more aggressive – now I see clearances of the whole store at 30to 60% off – some even at 70%.

All types of retailers have to rid themselves, now, of winter merchandise. The Holiday season was lackluster until the final week before Christmas, and, while the last days were frantic – there is still lots of unsold merchandise. Under these conditions it is no longer a question of whether a profit can be made; but rather, how quickly can goods be sold so that retailers are ready to receive and display fresh Spring goods. Despite below-freezing temperatures in much of the US, the stores soon want to look fresh, exciting and ready for the new season. That means heavy promotions and big discounts to entice consumers to buy, now, the things they did not buy for the Holiday.

Retail nirvana would be not having to liquidate seasonal goods at virtually no profit; and there was once a retailer that made that very idea a cornerstone of its strategy. In the 1970’s and 1980’s Petrie Stores was a big popular priced fashion chain run by Milton Petrie, Chairman, and Hilda Kirschbaum Gerstein, President. The group’s 1700 stores operated under several banners including: Petrie’s, Marianne, Jean Nicole, Winkelman’s, Stuarts, M.J.Carroll, Rave and G&G. Milton Petrie’s philosophy was to convert his stores to a Spring look by the middle of December. This transition into the next season resonated with his customers who bought Spring fashions well before the temperatures outside began rising. Petrie’s customers enjoyed giving Christmas presents that heralded the new season. This merchandise strategy was very profitable for Petrie stores because it reduced the need for post-Christmas markdowns. However, it was a different time; a less competitive time. There was no Internet; consumers did more mall shopping than they do now. In the end, despite a differentiated approach to seasonal merchandising, Petrie Stores did not make it. The company declared bankruptcy at the end of 1994 due to lack of effective management succession.

Today’s retail environment is very different than when Petrie Stores hailed supreme. The Internet has added significantly to the competitive fray. The Internet allows consumers to quickly, and easily, comparison shop whether for the biggest bargain in electronics or the right fashion at the lowest prices. Sites like HauteLook, MYHABIT, Rue La La, yoox, Gilt, Ideeli, and Bluefly, just to name a few, offer special deals on fashion goods that shoppers have a hard time ignoring.

What does it all mean? Retailing is more promotional than ever and the customer responds to value offerings. Maybe she is worried about her budget and wants to stretch her discretionary dollars as far as possible. Maybe she is worried about her job. Maybe she has more people to care for and less time to shop. Big promotions and deep discounts give her more comfort she is getting a good value and making a good decision when she spends. These consumer pressures are not going to change. I think 2013 will be continue to be very promotional with the Internet leading the way as it continues to gain market share from other types of retailing.

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